H3 



COMMUNICATION 



BOARD OF TRADE OF PHILADELPHIA 



COMMITTEE ON FINANCE OF THE SENATE OF THE 
UNITED STATES, 



PROPOSING A PLAN OF EQUITABLE TAXATION TO MEET THE 
EXPENSES OE THE GOVERNMENT. 



PHILADELPHIA, APRIL 2, 1862. 



PHILADELPHIA: 

COLLINS, FBINTEB, 705 JAYNE STREET. 

1862. 



J 



COMMUNICATION 



BOARD OF TKADE OF PHILADELPHIA 



COMMITTEE ON FINANCE OF THE SENATE OF THE 
UNITED STATES, 



PROPOSING A PLAN OF EQUITABLE TAXATION TO MEET THE 
EXPENSES OF THE GOVERNMENT. 



PHILADELPHIA, APEIL 2, 1862. 



PHILADELPHIA: 

COLLINS, PEINTEK, 705 JAYNE STREET. 

1862. 



COMMUNICATION. 



TO THE COMMITTEE ON FINANCE, 

UNITED STATES SENATE:— 

Gentlemen : Upon a recent interview, which, as delegate from 
the Board of Trade of Philadelphia, I had the honor to hold 
with a sub-committee of your body, having under consideration 
the question of taxes to be levied for the support of the Go- 
vernment, it was suggested that I should, at an early day, give in 
writing the views of my constituents on that absorbing topic. 

It is clearly a just principle that, as taxes are laid for the pro- 
tection of persons and property, they must be uniformly laid on 
whatever is selected for taxation. Thus one man's head is 
as valuable to him as another's, and therefore a capitation tax 
should be uniform. So in property; every man should be taxed 
for the protection of his property, annually, just in proportion to 
his annual income or profits. Though policy or humanity would 
omit the profits of those who are so circumstanced that they can 
only gain the bare necessaries of life. 

This principle may have some exceptions, which will occur to 
you; but it is clear that the most just mode of taxation is upon the 
annual income or profits of every person who can be reached. 
This being admitted, the problem to be solved is, how can the rule 
be fairly applied. 

Upon fixed incomes from investments in real or personal estate, 
upon compensation or salaries, upon persons doing solely a cash 
business, and whose incomes are therefore shown by their balance 
sheets, and, in fine, upon all whose income is definite, an in- 
come tax is the most equitable. 

General trade is not in this category. There are so many con- 
tingencies in business conducted on credit, that no man of busi- 
ness can define his year's profits until time shall test their reality. 



There is the question of ultimate payment by his debtors ; the fluc- 
tuations in value of the stock carried over, the chance ofreclaraa- 
tions, of lawsuits growing out of his transactions, and many 
other contingencies that preclude the possibility of a fair statement 
of his real gains till years elapse. 

Therefore a trader's apparent profit must, in the nature of the 
case, be but an approximate estimate of his ultimate income, on 
which estimate he is entitled to a credit for all his risks, real or 
imaginary. 

Besides, a business man*s gains are among the closest of his se- 
crets, which he will not readily divulge, as upon secrecy often de- 
pends success. Small profits injure credit, while large ones invite 
competition. The attempt to obtain them by an inquisitorial pro- 
cess will be resisted. The Government must depend, upon the 
information of the trader, for his books are no sure guide. 

Some other mode of spreading this tax upon profits must be 
devised, to enable Government to claim its just share from 
each, and while there is probably no mode on which absolute 
equity can be obtained, the best approximation is a tax upon sales, 
which are the foundation of all profit. 

The gains on various kinds of business undoubtedly differ ma- 
terially ; but as it is impossible to attain a correct knowledge as 
to these variations, it is necessary to assume figures on which to 
base the tax, leaving future development, to correct errors. 

It is assumed, therefore, that a seller or trader can turn his 
capital twice as often as a manufacturer or producer ; but he does 
so at half the profit, and hence the tax on the sales of the producer 
should be double that on the sales of the trader. 

This proportion is undoubtedly true with regard to large opera- 
tors of both classes, but as the amount of sales is reduced, the 
profit increases, and it is probable the small trader has the advan- 
tage; but the line cannot be drawn with accuracy, and we must 
content ourselves with a general rule. 

If, therefore, we further assume that the profit of the producer 
is ten per cent., and that of the trader five per cent. — figures, which 
upon the whole average are perhaps below the mark, though in 
excess upon large operators — and tax the producer one per cent, 
and the trader one-half of one per cent, on their sales respectively, 
the Government will take one-tenth of every man's profits for its 
support. 



As this tax is upon sales, it covers all foreign as well as do- 
mestic productions, and is so distributed upon the profits of every 
person who derives advantages from business that it oppresses no 
one, and is, fairly, an income tax. Having stated these views, it 
is now necessary to give the figures to show the efficacy of these 
measures in raising revenue. 

The last estimate, that of the census of 1860, of the product of 
industry and the arts in the United States, is about 1900 millions 
of dollars. Two years have elapsed, and they are now taken at 
2000 millions, which amount, at one per cent, gives 20 millions 
of dollars as the gross revenue yielded by tax on the products of 
industry. 

The estimate of the amount of sale by traders is not so readily 
made, as there are no direct statistical data ; although several 
persons, by different processes, have arrived at results in singular 
coincidence with each other. I prefer to give the results which I 
have thought most reliable. 

All sales of personal property must be from the produce of the 
arts and industry, agriculture, or importation of goods of foreign 
origin. Hence we have, for the first, the products of arts and in- 
dustry, 2000 millions ; for the next, the products of agriculture, 
nearly the same figure ; but it is estimated that about one half the 
agricultural production is retained for local and home consumption, 
seed, &c., leaving but one-half for sale, or say $1,000,00.0,000 

Products of industry .... 2,000,000,000 

Foreign products 300,000,000 



Total sales ...:.. $3,800,000,000 

While it is true that a considerable ])ortion of these products 
are sold directly by the producer to the consumer, it is also true 
that they form the whole basis of trade, and pass from hand to 
hand many times at accumulated profits. From the original pro- 
ducer through the wholesaler, and to the final retailer, often as 
many as 6, 8, or even 10 persons intervene, each paying a tax on 
his own sales. 

It is assumed, therefore, that the whole salable product passes 
through three distinct hands before it finally reaches the consumer, 
and therefore pays a tax of one-half per cent, on near 10,000 mil- 
lions, and produces a revenue of 50 millions. 

To illustrate the working of this plan, let us trace a ton of 



coal from the mine to its final destination — saj at Boston. To 
do this fully I will add the taxes to be hereafter proposed. The 
mine owner pays one cent per ton ; the miner one cent ; the re- 
ceiver at a shipping port pays one and three-quarters ; the ves- 
sel three-quarter cent ; the wholesale dealer two and a-half cents ; 
the retailer three cents (or if the two last are united, two and 
a-half cents less.) Thus anthracite coal pays ten cents per ton; 
divided over the profits of six different persons. If these interests 
or persons can manage to roll these minute taxes up and put them 
on the consumer, they are fortunate, if not there is nobody hurt. 

It Vill be perceived by the foregoing that no tax is laid on agri- 
cultural products while yet in the hands of the producer, but so 
soon as they pass into the hands of a trader, they pay a tax out 
of the trader's profit; though provision should be made that if a 
farmer should trade in order to avoid the tax, he should be com- 
pelled to pay as others. 

The reason for this is that while there are some extensive farmers 
who might be taxed, the great majority till the land with their 
own hands, and do not produce more than a living. Farms, too, 
are supposed to pay but a slender interest on the investment. 
This remark does not apply to the great producers of the South, 
and therefore a producers' tax should be put on the leading staple 
of that region ; in which case the tax of one per cent, would 
apply to cotton, rice, sugar, and tobacco, and is estimated to yield 
$1,250,000. 

Under the foregoing head, a general tax has been considered, 
small in amount, to be spread over all the persons who have any 
interest in the profits of business, as equitably as the case admits. 

There are, however, certain articles of consumption which may 
be excepted from the rule, because they are not affected by com- 
petition, or they are made, by the habit of the people, of such cer- 
tain and uniform demand, that an addition to the cost will not affect 
the manufacture, or diminish the sale, and may therefore be taken 
as exceptional cases, on which a judicious tax can be laid, with a 
certainty that the burden will be spread upon the consumer. 

As a general rule, it is true that the duty or tax is paid by the 
consumer, but this is brought about at the expense of the product, 
or of the amount produced ; for, as the price of an article depends 
upon the relation existing between supply and demand, it follows 
that to obtain a higher price, the quantity made must be reduced, 



and this reduction reacts upon the source of production, "labor." 
The foregoing proposition spreads the tax in such minute propor- 
tions over so many incomes that the effect here noticed is not likely 
to be seriously felt ; while so heavy a tax as three per cent, upon 
production would, without doubt, seriously affect the industrial 
pursuits of the country, and would by its own action diminish the 
accruing revenues. The disastrous effects of the special and three 
per cent, ad valorem taxes of the House Bill would soon be mani- 
fest. 

The articles alluded to as exceptional, are, spirits distilled ; malt 
liquors ; tobacco manufactured ; and petroleum, or rock oil. 

How much these products can bear without affecting the amount 
produced, must be a matter of experiment, and the rates may re- 
quire alteration when put to the practical test, and defects are dis- 
closed. 

It is believed that the Committee on the bill in the House of 
Representatives have exercised sound judgment in rating these 
articles, except on malt liquors, which will be most easily affected 
by excess of cost. The rate on these may be safely reduced to two 
cents a gallon, or sixty cents per barrel. In estimating the reve- 
nue from these four articles, the estimate of the committee is taken 
in greater part, thus : — 

Distilled spirits at ten cents per gallon would yield $15,000,000 

Malt liquors at two cents per gallon . . . 2,400,000 

Tobacco manufactured 3,000,000 

Petroleum, at ten cents on refined .... 6,000,000 



In all . . . $26,400,000 

Add to this the general tax on production and sales $70,000,000 



And the whole foots up, in gross .... $96,400,000 

The tax on petroleum must be more fully explained. This arti- 
cle is the natural production of the earth, which enters largely into 
consumption, as well in the arts, as for illuminating purposes ; cost- 
ing in its original production no more than water. Hence it is, 
for the purposes of its use, absolutely without a competitor, and 
must, in the end, occupy the whole market. It is therefore safe 
to tax it- to a point which still leaves- it below the cost of any 
other article competing with it. 



8 

As this oil cannot, under tlie reciprocity treaty, be introduced 
from the flowing wells of Canada, you have complete control of the 
question, for by drawback on exportation, the Anaerican producer 
is again placed on a par with the Canadian exporter. 

The process by which the yield of the oil tax is estimated, is as 
follows. The present yield of the wells may be taken at four mil- 
lions of barrels per annum, which will produce three millions of 
barrels of refined oil. At ten cents per gallon on the refined, or four 
dollars per barrel, the revenue is twelve million of dollars. But 
the production exceeds the demand, and therefore but two-thirds 
of this revenue is estimated, or eight millions. If one-fourth of 
this is exported, the drawback will reduce the figures to six mil- 
lions. If the demand is enlarged, the revenue will also advance 
with it. 

It may be suggested here that all productions and sales of less 
than $100 per month should be exempted. 

INCOME TAX. 

As this theory of taxation admits incomes .or annual profits as 
its basis, an income tax may be charged upon the results of all 
fixed incomes, and the rate fixed by the House bill, of three per 
cent., is adopted. 

1. This tax will cover the income from fixed investments, say 
interest on State, county, and municipal loans ; dividends, and in- 
terest from railroads, canals and bridges, and other internal im- 
provement securities ; dividends from banks, insurance companies, 
and all other corporations with stocks held in shares, or permanently 
owing money, or for which evidences of debt are issued (except- 
ing charitable institutions); — to be paid by the companies or trusts, 
and deducted from the stipulated amount due the stockholders or 
creditors, whenever such amounts may be due. 

2. On the rents or estimated annual receipts from all real estate, 
except such as may be used by its owners for carrying on any 
trade or occupation, the results of which are already taxed under 
the first clause. 

3. Income from mortgages, ground-rents, leases perpetual, wi- 
dows' dowers, annuities, bonds, judgments bearing interest, &c., 
the last to be assessed after stay of execution expires. 

The taxes on the personal revenues received from all these 



sources sliould be paid over to the government b}' tlie debtor, and by 
the debtor be deducted from the amount due the creditor, except the 
rents of real estate. The reasons for this mode of collectiou are 
obvious. First, there will be no inquisitorial search into private 
affairs of any one. Second, the debtor has no motive for con- 
cealment ; on the contrary, as he cannot settle with the creditor 
without paying the whole amount, or handing over the evidence of 
having paid the government tax, he will be sure to pay that to 
avoid responsibility for it on his own part. 

The rents from real estate cannot be collected from the tenant, 
because as the tax should be on the net revenue, which consists of 
the rent, less interest on mortgages, ground-rents, and local taxes, 
the tenant cannot know the amount. The tax on this item must 
be paid by the owner. 

4. Fixed incomes from salaries over six hundred dollars per 
annum. 

5. Income from professions. 

6. Income from those dealers whose transactions are in money, 
and who can at any time state their income, or profits, from their 
books, — such being over $600 per annum — to wit; bankers, brokers 
of all kinds, as stock and exchange, note, real estate, and convey- 
ancers ; merchandise and ship-brokers; — on the aimaal profits of 
all these, three per cent. 

AH real estate, mines, and other rentable property, not rented, 
but occupied or worked by the owners, should pay the income tax 
upon an assessed rent. 

It will be readily understood that an estimate of the product of 
this tax cannot be made with accuracy, as no statistical data can 
be obtained. Some items may be stated as follows : — 

Bank capital amounts to 430 millions, and, taking the average 
dividends at six per cent., the profits would be 26 millions, on 
which a tax of three per cent, would yield $780,000. 

The real estate of the United States is assessed at 12,000 millions. 
A large portion of this is unavailable and exempt, at the same 
time the assessed value is far below the real value. If, therefore, 
we take one-half, or 6000 millions, as the real amount, and assume 
that it rents at three per cent., we have an income of $180,000,000 
to tax at three per cent., or $5,400,000 of income. This, of course, 
includes the income on ground rents and mortgages. 

The railroad interest in the United States suras up 1500 millions 



10 

in stocks and bonds; the average return from which is about five 
per cent., or 75 millions, which will yield in tax two and a quarter 
millions. The State and municipal debts may be taken at four 
hundred millions; which, at five per cent., will return 20 millions, 
and yield a tax of six hundred thousand dollars. As these items 
furnish an aggregate of near ten millions of tax, it is fair to sup- 
pose that with the unestimated remainder, the full sum of twelve 
millions may be relied upon to be realized from rent of real estate, 
securities, and all other income taxes. 

Shipping. — As this proposed plan of taxation falls upon com- 
mercial sales, there seems to be no valid reason for exempting the 
shipping interest. It is also proposed to tax the gross receipts 
for freights, the same rates as upon sales — say the half of one per 
cent. To estimate the product from this tax, it is fair to suppose 
that vessels will receive annually about their own value in freights. 
As the total tonnage (above twenty ton coasting vessels) in the 
United States is 5,300,000 tons, and its probable value $30 per 
ton, it is assumed that this source will produce one-half per cent, 
on ITO millions of dollars, or eight hundred and fifty thousand of 
revenue. This tax is intended to apply to all tonnage, whether 
propelled by sail or steam, in domestic, internal, or foreign trade, 
if in American bottoms. 

It is a tax on the profits of the shipowner, and should be assessed 
on all freights received ; or, if goods are shipped on owner's ac- 
count, the freight should be estimated. 

A tax may be laid on travel by railroad and steamboat, foreign 
and domestic, to be borne by the traveller, and we propose per 
cent, to be added to the fare ticket when collected, and to be paid 
over by the company owning the conveyances. A percentage is 
more equitable than a fixed mileage, as the rate of fare diS"ers in 
various parts of the country, and by different modes of conveyance. 

Hotels, inns, taverns, eating-houses, theatres, all places of 
amusement, and the like, have no claim to be excused from paying 
their fair share of public burdens, and should be taxed one-half 
of one per cent, on their receipts; or, if more convenient and easier 
of collection, three per cent, on their rental might be substituted 
in lieu of licenses. 

Itinerant places of amusement should pay one-half per cent, on 
their receipts. 

The tax on inheritances might, with judgment, be reduced to 



11 

tliree classes instead of five, to wit : Next of kin, as proposed, 
three-fonrths per C(!nt. ; all of kin, but not of immediate family, 
one and a half per cent. ; collateral inheritance, three per cent. 
To determine the tax on the several grades in the bill will often- 
times require the judgment of the court, and the assessor will find 
himself at issue with the parties in interest, if such minute divisions 
are required. Under these changes the product may still be taken 
at one million of dollars. 

Licenses are, by this proposition, merged in the general taxes 
on production and commerce ; so are slaughtered cattle, &c. The 
tax on advertisements is omitted as a consequence of the same 
general principle. 

The tax on carriages, watches, furniture, and dogs, are too in- 
considerable and too annoying to be worth attention, and this 
system will produce enough revenue without them. 

The tax of one and one-half per cent, on revenue from United 
States bonds is undisguised repudiation, and can afford no revenue 
on future issues, because the value of the loans will be reduced by 
the amount of the capital of which the tax is the interest. The 
credit, too, of the government will be injured, for if once taxed, 
there may be no limit to future taxation, and capitalists will fear 
to invest. 

To the stamp tax, which is a small fee paid to legalize the trans- 
fer of property, there can be no reasonable objection ; though it is 
believed the stamp on medicine, which is mainly bought by the 
poor, is unwise, and will be of little value, as it will be so easily 
evaded. 

Property, having been freely burdened for its protection, it 
seems but fair that persons, the majority of whom are exempted, 
should pay something towards the support of the constitution and 
their flag. A poll tax is therefore proposed of two dollars a head. 

This tax ought to yield about eleven millions, but as it must be 
collected according to representation, the estimate should be re- 
duced to ten millions. 



Having thus presented the views of Board of Trade upon the 
general scheme of taxation, in which they proposed to spread the 
burden over the profits of the whole people lightly and as evenly 



12 

as possible, they have only to make two suggestions and then pro- 
ceed to consider the proposed means of collection. 

There are a great many contracts for delivery in the United 
States running on time, which have been made without any refer- 
ence to the tax, and often at very small profits. It is but justice 
that whenever such contracts have been made prior to the passage 
of this act, the tax should be assessed on the purchaser; long 
leases excepted. 

Real estate is the only property that will, under this plan, be 
taxed twice in the same hands, and as its income will be taxed, 
the estate should be relieved by a repeal of the law of last July, 
so far as regards the future. Real estate is now burdened by State 
authority, especially in cities, at from 15 to 20 per cent, of its 
rents, and further burden would be most oppressive. 

There remains now to allude to the mode of collection. 

Mr. Bigelow, delegate from the Boston Board of Trade, sug- 
gests that the whole tax be collected by stamps purchased at Post 
Offices. This is a novel idea, but w^orthy of mature consideration. 
It makes every honest man his own collector, leaving delinquents 
only to the tender mercies of the officials. 

As we are a very honest and patriotic nation, there is no doubt 
the bulk of the taxes will be paid thus, voluntarily, and all who do 
pay will be interested that their neighbors do not escape, and thus 
become the allies instead of the enemies of the tax collector. This 
mode will dispense with an army of officials, who are more dreaded 
than the taxes themselves. 

All taxes in which this mode is possible should be made paya- 
ble monthly, by stamped returns without oath, and the delinquents 
heavily fined if they have to be called upon by a collector. 

This is not the place to mature the whole system, but one might 
be devised which would render the collection easy and safe. 

The tax year should commence with the fiscal year of the 
treasury, both for convenience, and because some time must elapse 
before the machinery for collection can be prepared. 
By order of the Committee, 
(Signed) S. Y. MERRICK, 

Delegate. 

Philadelphia, April 2, 1802. 



13 



Estimate of the probable income to be yielded by the proposed 
plan of taxation. 



1. Tax 


on Producers 


$20,000,000 


2. * 


' Trade and commerce . 


50,000,000 


3. 


' Spirits 


15,000,000 


4. 


' Malt liquors . . . . 


2,400,000 


5. 


' Manufactures of tobacco . 


3,000,000 


(). 


' Petroleum 


6,000,000 


7. 


' Freights (shipping) . 


850,000 


8. ' 


' Inheritances . . . . 


1,000,000 


9. 


' Income tax 


12,000,000 


10. 


' Stamp tax . . . " . 


6,000,000 


11. 


' Southern agricultural products 


1,250,000 


12. 


' Hotels and amusements 


(unknown) 


13. ' 


' Railroad and other travel . 
Aggregate .... 


(unknown) 




. 8117,500,000 


Deduct 


direct tax as per bill of 1860, propo 


sed to 


be re 


pealed 

Net yield 


12,000,000 




$105,500,000 


House ( 


IJommittee's estimate 


102,000,000 



Excess . 



$3,500,000 



LIBRARY OF CONGRESS 

020 267 292 9 



